Do higher financial benefits translate to labour productivity? Experiences from selected industries of Indian manufacturing sector

Purpose With labour being a crucial factor of production, a deeper understanding of the factors influencing its productivity is imperative. The purpose of this study is to address the impact of the financial benefits on labour productivity (LP) in the post-reform era in the Indian Manufacturing Sector. Design/methodology/approach The paper is based on experiences from selected industries of the Indian manufacturing sector during the post-reform period. Panel data models are estimated using the KLEMS database of the Reserve Bank of India and EPWRF database. Findings It is found that while LP has increased during the post-reform period, financial benefits have no significant impact on the same. Instead, changes in LP are positively influenced by capital-to-labour ratios and labour quality. LP is also influenced by the labour regulations. Research limitations/implications Due to the unavailability of systematic data on labour quality for an extended period, only education and years of experience were used. However, for confirmation of results, secondary proxy on skill development programme of the government was employed. A deeper scrutiny of the determinants of labour quality helps managers formulate HR strategies focused on enhancing labour quality. Additionally, this study can be adopted in other sectors, like service sector, to understand the generic nature of LP. Originality/value Achieving fast economic growth and employment generation with emphasis on increasing factor productivity and competitiveness were among the prime objectives of economic reforms to facilitate growth and survival of firms under the new business conditions. In this context, this paper examines how financial benefits affect LP. The findings suggest for focus on factors other than financial benefits, which are crucial to LP. Emphasis on technology adoption and capacity building of workforce can potentially improve LP in the Indian context.